How a bipartisan group that hoped to make Washington more functional became yet another cog in the D.C. moneymaking machine — and infuriated Democrats

No Labels, a group of Republican and Democrat Congressmen, gather to call for a solution to end the U.S. Government shut down on Capitol Hill in Washington, October 10, 2013. U.S. House of Representatives Republicans are considering signing on to a short-term increase in the government's borrowing authority to buy time for negotiations on broader policy measures, according to a Republican leadership aide. (REUTERS/Jason Reed)

In 2010, a group of political veterans who said they were tired of the extreme partisanship paralyzing Washington created an organization to advance their new cause. The founding mission of No Labels was "to move America from the old politics of point scoring toward a new politics of problem-solving." Through a combination of congressional engagement in Washington and grass roots organizing around the country, No Labels’ lofty aspiration was to promote bipartisanship by providing political cover for lawmakers to work across the aisle and creating incentives to slowly erode the culture of polarization and intransigence in Congress. But four years later, it appears the group designed to combat the insidious habits of the Washington establishment has been engulfed by it.

Like many other outside political groups, No Labels spends a disproportionate part of its budget maintaining and promoting its own organization, trying to keep its profile high while ensuring a steady flow of fundraising dollars, whose donors they keep secret, in a cluttered nonprofit environment. As part of its efforts to gain legitimacy and grow its membership, No Labels has also occasionally waded into congressional contests in ways that have raised suspicions among Democrats about the group’s own commitment to bipartisanship.

And though No Labels has positioned itself as a warrior against gridlock, an internal document obtained by Yahoo News suggests the group is banking on more political dysfunction in an attempt to find “opportunity” and relevance for itself.

The confidential document, distributed at No Labels’ May executive board meeting, outlines a “break through strategy” for the group, which despite raising millions and a buzzy-for-cable-news-talk launch, has struggled to find a foothold on the campaign trail or in the halls of Congress. The first point in that strategy is a “balance of power shift in the U.S. Senate,” an awkward position to outline, if not advocate, given No Labels’ aim of bipartisanship and that one of the group’s co-chairs, Democratic Senator Joe Manchin of West Virginia, currently sits in the majority caucus.

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“Should the balance of power in the U.S. Senate flip following the 2014 midterm elections and Republicans gain control, No Labels sees an opportunity to bridge the gap between Congress and the White House,” the document reads in its “Break Through Strategy” section. “With Republicans holding control of both chambers in Congress and a Democrat in the White House, the likelihood of gridlock will be higher than ever before.

“We have already begun back door conversations with Senate leaders to discuss this increasingly likely scenario,” the document continues.

This privately stated position exacerbates an already publicly spoiled relationship with Senate Democrats, who are still fuming from an April incident in which the group supported conservative Republican Cory Gardner in Colorado over Manchin’s colleague, incumbent Democrat Mark Udall. The endorsement, which No Labels later tried to clarify by saying that any candidate could be backed by the group if they just agreed to be a member, was touted by Gardner in press releases and caused the few Senate Democrats involved with the group to threaten to pull their membership, according to Democratic sources.

“It's wrong to read the memo suggesting there is a greater opportunity coming out of Republican [vs.] Democratic leadership in the Senate. We are a bipartisan group — whose problem-solving seal is carried by both Democrats and Republicans,” No Labels co-founder and chief operating officer Nancy Jacobson said. “We are happy to work with whoever the voters choose. The memo was just a ‘what if’ document preparing if there was a change.”

But to openly discuss its role in a future, hypothetical Republican-led Congress is especially unusual, given that of the 10 senators who belong to No Labels, three — Mark Begich of Alaska, Mark Pryor of Arkansas and Mark Warner of Virginia — are embroiled in difficult re-election races and might have to lose in order for the GOP to take back the Senate. Asked about “back door conversations” with Senate leadership cited in the memo by the group, aides to the five Senate GOP leaders told Yahoo News that their bosses have not discussed a Republican majority with No Labels, though No. 2 Republican John Cornyn of Texas did attend a May campaign event with the group in New York City and No. 3 Republican John Thune talked taxes and Obamacare in a meeting last month.

Though a flip of the Senate majority is a key expectation in the group’s strategy, officials at No Labels told Yahoo News they are more focused on the 2016 presidential race than the 2014 midterm elections. The group’s memorandum briefly addressed its “role” in the midterms in a bullet point that indicated No Labels provided $300,000 “in financial support through direct candidate contributions” at a May forum.

The group failed to carve out much of a niche for itself in the 2012 presidential contest. Its backing of a 12-point “Make Congress Work!” action plan and promotion of a bill that would “withhold congressional pay if members of Congress fail to pass spending bills and the budget on time” went nowhere. Since then, its focus on fostering bipartisanship in Congress has not gone far, except to the extent that there is now bipartisan stagnation and gridlock so severe some members report becoming depressed and hating their jobs. Members of Congress seem all too eager to accept the mantle of civic responsibility offered by No Labels, only to return to partisan warfare.

In July 2013, No Labels held a rally where lawmakers of both parties crowded a park outside the Capitol, stood on a grandstand and one by one declared themselves “problem solvers.” The government shut down a few months later as Republicans, including some who appeared on that stage, refused to allow a budget to pass unless it defunded the president’s health care law.

Even in its own May document, No Labels claimed only one legislative victory: a bill that passed out of the House Energy and Commerce Committee by voice vote, but which never came up for a vote in the House or became law.

It turns out that for a group that consistently bills itself as above the partisan politics and the corrosive culture of Washington, No Labels has come to exemplify some of the most loathed qualities of the town’s many interest groups.

Much of the group’s budget goes toward sustaining or promoting itself. According to No Labels’ confidential document, the group employed 22 paid staffers and eight consultants as of May. Of its projected $4.5 million budget for 2014, only 4 percent — or $180,000 — of spending was slotted for “Congressional Relations.” By contrast, administrative and operational expenses got $1.035 million over the same time period. Another 5 percent was set for travel. A further 30 percent ($1.35 million) was earmarked for digital growth and press, and 14 percent for fundraising.

It’s unclear how the group’s budget broke down in previous years, as No Labels is not obligated to fully disclose its finances or donors because of its 501(c)(4) tax-exempt status. But many of the organization’s biggest detractors question why a group advocating for a better Washington would embrace the same practices as the groups profiting from dividing it.

“The reality is that No Labels is a front group to raise money and pay consultants,” said a senior Senate Democratic aide, who spoke on the condition of anonymity. “They should release a full disclosure of not only how they’re raising their money but also how they’re spending it.”

When asked whether No Labels should disclose its donors when fighting for a less divisive political system, Jacobson said, “No — In our hyperpartisan world, the concern might well be the opposite,” suggesting that in a political atmosphere where most big donors spend money to boost one side over another, donors who choose to promote bipartisanship need greater protection.

No Labels has raised approximately $12 million since 2010, with another $4 million pledged for 2014, according to its private financial summary.

And though it’s impossible to tell the exact breakdown of high-dollar versus grass-roots donors to the group, a separate series of memorandums obtained by Yahoo News listed nearly a dozen contributors who have cut six-figure checks. In addition to the few big donors the group already had discussed publicly, this previously unknown list of donors paints a picture of a group that receives a substantial chunk of its financial backing from a small number of people.

In a memo to potential interested parties, dated April 29, 2014, No Labels disclosed five $500,000 donors, three $100,000 “donors who are considering moving to the $500K sponsorship level” and three donors whose contributions were not specified between the two levels. Among those donors are a former top Enron employee, John Arnold, and his wife; Alfred Taubman, a real estate magnate who spent 10 months in prison for antitrust violations, and his wife; and No Labels’ own legal counsel. Top GOP donor John Canning Jr., a private-equity chairman, hosted a June luncheon for the group in Chicago to familiarize other prospective supporters and is himself a donor, though neither he nor No Labels would disclose how much he has donated. No Labels attorney Ezra Reese, a partner at Perkins Cole who was clearly listed in the "donors" section of the group's memo, contacted Yahoo News three days after this story published to say that he has not donated to the group "and has a policy of not contributing to clients."

“No Labels is supported by both [established] Republican and Democratic donors, as well as small donors that give on the website. The donations are roughly equal,” Jacobson, who is also a well-known Democratic fundraiser, said. “In a world of organizations spending tens and even hundreds of millions of dollars, the work of No Labels (because it has not involved political advertising) is done on a relatively modest budget.”

No Labels’ judgment, however, of which politicians are best suited to reduce congressional gridlock is perhaps what makes the group the most vulnerable to attack from its detractors. And it has diminished its credibility with those it needs the most: the people who actually influence and make decisions on policy. Multiple Senate Democratic aides characterized the relationship between No Labels and Senate Democratic leaders as “hostile,” and said that the current distance stems from the controversy surrounding Gardner and the Colorado Senate race.

In April, No Labels gave its “Problem Solver Seal” to Gardner, the GOP challenger to the Senate Democratic incumbent Udall. Gardner touted the seal as an endorsement from No Labels, a situation that incensed members of the Senate Democratic caucus.

Gardner and No Labels then were forced to clarify the meaning of the seal after Democratic members threatened to leave the group and multiple No Labels board calls were held to discuss the matter. While a group spokesperson told a local Denver Fox affiliate that the seal is an “implied endorsement," No Labels co-founder Mark McKinnon, a former George W. Bush and John McCain strategist, said that anyone — even Udall — would be eligible for such a seal were they join the group.

The Problem Solver Seal granted by No Labels to lawmakers requires nothing of those members from a policy perspective, aside from agreeing to be part of No Labels, and to attend meetings with other No Labels members to discuss broad principles of bipartisanship. To be a member of No Labels, a politician needs to pledge to not take any pledge but the oath of office and the Pledge of Allegiance.

“The Seal can be awarded both to incumbents and challengers. It is distinct from a traditional political endorsement in that candidates running against one another might both qualify for the Seal,” said Bill Galston, a No Labels co-founder and senior fellow at the Brookings Institution. “The criteria are simple: to qualify, candidates must agree — if elected or re-elected — to attend meetings with their colleagues to work toward creating a National Strategic Agenda, and they must endorse the four goals.”

Gardner was among the top 10 most conservative members of the House in 2012 and the 98th in 2013, according to rankings by the National Journal. But the group has also given the seal to Reps. Peter Welch and Jared Huffman, who were among the top 20 most liberal members of the House in 2013, according to National Journal. It’s not that No Labels has shifted rightward ideologically and deliberately, it’s that its initial design to provide cover to politicians on both sides to work in a bipartisan way also gives cover to politicians who won’t but want to have lapel pins on their jackets saying they do.

No Labels’ critics question the seriousness of a group that includes a number of Republicans whose conservative bent and heated rhetoric have more of an outsize influence on their party than does the liberal wing of the Democratic Party. The No Labels website talks about “unprecedented, even dangerous” tactics from the right in trying to defeat health care, but the group also includes some of the most outspoken members on this issue. Democratic critics ask what it says about the group that its “problem solvers” could vote to shut down the government or against raising the debt ceiling but maintain their “problem solver” status by attending No Labels meetings.

Reps. Scott Perry of Pennsylvania, Diane Black of Tennessee and Jack Kingston of Georgia are No Labels “Problem Solvers,” and ranked among the top 17 most conservative members of the House in 2013. Just this month, it was revealed Kingston spoke to a conservative radio show about Congress looking “very seriously” into impeaching President Barack Obama.

A spokesman for Bloomberg declined to comment on Bloomberg’s previous involvement with No Labels, and No Labels itself downplays the former mayor’s involvement.

The Gardner episode underscores No Labels’ complicated trajectory and offers a cautionary tale for outside political groups that end up being defined by the very culture they sought to battle against.

Over the past few months, No Labels has held multiple luncheons and events in major fundraising cities like New York, Chicago and Dallas, acquainting prospective donors with its aims and missions. No Labels has reserved a booth at the upcoming Iowa State Fair in August that will be open for the duration of the 11-day annual event, according to two sources. And it has already hired a state director — Steve Marchand, a former Democratic mayor — and a consultant in the early-primary state of New Hampshire, in the hope of influencing the 2016 presidential election.

Clearly people still are writing big checks to keep the operation moving.

But the more they do, and the more entrenched a player No Labels becomes, the more risk there is that the accumulated weight of the group's actions will come to define them permanently. In today's highly partisan Washington, it's hard to stay unlabeled for long.

UPDATE: This story was updated on July 31 to reflect that No Labels' counsel disputes the group's characterization of him in a private memo as a donor to the group.